With appetite disappearing for both lenders and borrowers in highly debt-ridden sectors like power, telecom and mining, the deployment of bank credit to these industries have witnessed a plunge and the trend may continue unless the basic issue of red mark in the balance sheets of banks by way of Non-Performing Asset (NPAs) and the corporate firms in the form of back breaking leverage, is addressed, an ASSOCHAM Paper has said.
Analysing the Reserve Bank of India (RBI) data, the Paper noted that the mining sector, battling slowdown in demand and pricing power , saw a maximum of de-growth in deployment of bank credit in the financial year 2016-17 , by 11.5 per cent, to Rs 345 billion in March, 2017 from Rs 390 billion in the corresponding month of the previous year.
All the buzz around coal block auctions is missing, with subdued demand for coal, as also bleak outlook for the thermal power plants which are themselves struggling, after adding capacities based on assumptions of pricing and demand which have turned out to be far from the real situation, at the moment. Both the coal and coal-fired power stations are in a state of uncertainty; thus it is no surprise that these two sectors have no appetite left for expansion in fund deployment, the ASSOCHAM Paper observed.
Like mining and quarrying, including coal, the bank credit in power sector saw a contraction of 9.4 per cent to Rs 5256 billion as on March, 2017 from Rs 5799 billion a year ago. The sector is battling issues like high debt level, low prices of merchandise power, unwillingness of the state owned distribution firms to revise tariffs and a potential competition from solar energy, which , backed by the government subsidy has seen the generators made bids for solar energy as low or even lower than the conventional sectors.
Aggressive bidding for spectrum and intense competition for tariffs have brought the telecom sector as well to such a pass that the bank credit to the telcos is decreasing. It has become a game of deep -pockets but those pockets cannot be filled by borrowed money always, said ASSOCHAM Secretary General Mr D S Rawat.
The bank credit to the telecom sector during 2016-17 dropped by 6.8 per cent to Rs 851 billion from 913 billion, adds the paper.
However, a good part of the story is visible in iron and steel, which saw a positive growth, though by modest 2.6 per cent to Rs 3195 billion from Rs 3155 billion. The sector seems to be witnessing a recovery, helped by certain policy measures like restrictive imports from China, said the Paper.
It would be quite a haul before the situation in the highly leveraged sectors becomes healthy. Good part is that banks as also the borrowers are working towards resolutions of the staggering non-performing assets.
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